A Model of Directed Consumer Search

44 Pages Posted: 21 Apr 2017

See all articles by M.A. Haan

M.A. Haan

University of Groningen - Faculty of Economics and Business

José L. Moraga-González

VU University Amsterdam; University of Groningen

Vaiva Petrikaite

University of Groningen

Date Written: April 2017

Abstract

We present a framework to study directed consumer search. Firms sell products with two attributes. One is readily observable, the other only after visiting a firm. Search is directed as the order of search is influenced by the observable characteristics. Moreover, if prices are readily observable, firms also influence search direction by their choice of price. We show that when consumers observe prices before search, prices and profits are lower than when they do not. A lower price then not only retains more consumers, but is also more likely to attract them; the latter effect makes demand more elastic. When prices are observable before search, prices decrease in search costs. Consumer surplus initially increases in search costs, but may ultimately decrease.

Keywords: differentiated products, ordered/directed search, price observability

JEL Classification: D83, L13

Suggested Citation

Haan, M.A. and Moraga-Gonzalez, Jose Luis and Petrikaite, Vaiva, A Model of Directed Consumer Search (April 2017). CEPR Discussion Paper No. DP11955, Available at SSRN: https://ssrn.com/abstract=2954477

M.A. Haan (Contact Author)

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

Jose Luis Moraga-Gonzalez

VU University Amsterdam ( email )

De Boelelaan 1105
1081 HV Amsterdam
Netherlands

HOME PAGE: http://www.tinbergen.nl/~moraga/

University of Groningen

P.O. Box 800
9700 AV Groningen, Groningen 9700 AV
Netherlands

Vaiva Petrikaite

University of Groningen ( email )

P.O. Box 800
9700 AH Groningen, Groningen 9700 AV
Netherlands

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